Memorial for Claimant

Transcription

1 Team Castro THE FOREIGN DIRECT INVESTMEN INTERNATIONAL ARBITRATION MOOT, 2017 ATTON BORO LIMITED Claimant v. THE REPUBLIC OF MERCURIA Respondent i

2 Contents LIST OF ABBREVIATIONS... iv LIST OF AUTHORITIES... vi LIST OF LEGAL RESOURCES... x STATEMENT OF FACTS... 1 PART ONE JURISDICTION... 5 I. THE ARBITRAL TRIBUNAL MAY EXERCISE ITS JURISDICTION OVER THE CLAIMS IN RELATION TO THE AWARD A. The concept of Investment given in the BIT B. The interpretation of the BIT regarding the ordinary meaning of the BIT... 7 C. Identification of characteristics of Investment... 8 II. APPLICATION OF THE DENIAL OF BENEFITS CLAUSE A. The meaning given by the BIT of an investor B. Procedure to the application of the denial of benefits clause PART TWO MERITS I. THE RESPONDENT S ACTS ARE IN VIOLATION OF ITS INTERNATIONAL OBLIGATIONS A. The Respondent s Acts violate the Fair and Equitable Treatment obligation of the Mercuria-Basheera BIT The FET clause of the BIT is an autonomous concept The Respondent has breached the FET clause, insofar as the amendment of Mercuria s Intellectual Property Law undermines Atton Boro s legitimate expectations B. The Respondent's acts amount to an unlawful indirect expropriation II. MERCURIA IS LIABLE UNDER ARTICLE 3 OF THE BIT FOR THE CONDUCT OF ITS JUDICIARY IN RELATION TO THE ENFORCEMENT PROCEEDINGS A. Mercuria s responsibility for National Court s wrongful acts B. Mercuria s obligation to the New York Convention C. The High Court of Mercuria violated the fair and equitable treatment obligation of the BIT by breaching the prohibition against denial of justice Customary international law requires states to maintain a judicial system that meets international minimum standards of due process in its treatment of foreigners Mercuria s High Court undue delay of the process, violates the FET standard by denying access to justice ii

3 III. THE UNILATERAL TERMINATION OF THE LTA BY THE NHA OF MERCURIA AMOUNTS TO A VIOLATION OF ARTICLE 3(3) OF THE BIT A. The text of Article 3(3) of the BIT constitutes an umbrella clause B. The LTA was subscribed by the NHA and Atton Boro because of the latter s property over Valtervite s patent in Mercuria C. The NHA s argument regarding an alleged unsatisfactory performance by the Claimant over the LTA is unfounded D. The NHA is a State Organ E. The NHA contravened its obligations under the LTA by unilaterally terminating it and, in consequence, incurred a breach of Article 3(3) of the BIT The unilateral termination of the LTA was contrary to its provisions The Respondent is responsible under the BIT for the NHA s actions that constituted a breach of the LTA REQUEST FOR RELIEF iii

4 LIST OF ABBREVIATIONS Abbreviation Atton Boro Basheera BIT ECHR ECT FDC FET HIV/AIDS ICCPR ICJ ICSID ILC-DARSIWA LTA Mercuria NHA Explanation Atton Boro Limited Kingdom of Basheera Bilateral Investment Treaty European Court of Human Rights Energy Charter Treaty Fixed-dose combination Fair and Equitable Treatment Human Immunodeficiency Virus/Acquired Immunodeficiency Syndrome International Covenant on Civil and Political Rights International Court of Justice International Centre for Settlement of Investment Disputes International Law Comission Draft articles on Responsibility of States for International Wrongful Acts Long Term Agreement Republic of Mercuria Mercuria National Health Authority iv

5 OECD OHCHR Organisation for Economic Co-operation and Development Office of the United Nations High Commissioner for Human Rights p. Page para. PCA Reef R&D TB TRIPS UN UNCITRAL Uncontested facts UNCTAD Paragraph Permanent Court of Arbitration Republic of Reef Research and Development Tuberculosis Trade-related Aspects of Intellectual Property Rights Agreement United Nations United Nations Commission on International Trade Law Statement of Uncontested Facts United Nations Conference on Trade and Development v. versus VCLT Vienna Convention on the Law of Treaties, 1969 WIPO World Intellectual Property Organization v

6 LIST OF AUTHORITIES Black s Law Dictionary. Billiet, International Investment Arbitration: A practical Handbook Brès, Public Health Action in Emergencies Caused by Epidemics A practical guide. Dolzer and Schreuer, Principles of International Investment Law Black s Law Dictionary. Ninth Edition. West. Johan Billiet, International Investment Arbitration: A practical Handbook, Maklu-Publishers, P. Brès, Public Health Action in Emergencies Caused by Epidemics A practical guide, World Health Organization, 1986, p. 4, available at pdf Rudolph Dolzer and Christoph Schreuer, Principles of International Investment Law, Oxford University Press, 2012 European Commission European Commission, p. 31, 05/annex_files/WEDC/diseases/cpd03.pdf European Commission, Final Report February 2015 European Comission, Directorate-General for Justice, Consumers and Gender Equality, Case study on the functioning of enforcement proceedings relating to judicial decisions in Member States in the European Comission, Final Report February vi

7 Francioni, Access to Justice, Denial of Justice and International Investment Law Georgiev, Saluka Investments v. Czech Republic Happold and Roe, The Energy Charter Treaty Jiménez, International Law in the Past Third of a Century King, The Value of Intellectual Property, Intangible Acts and Goodwill Schefer, International Investment Law: Text Cases and Materials OECD, Fair and Equitable Treatment Standard in International Investment Law Francesco Francioni, Access to Justice, Denial of Justice and International Investment Law, The European Journal of International Law Vol. 20 no. 3, EJIL, George Stephanov Georgiev, Saluka Investments v. Czech Republic, the Award in Saluka Investments v. Czech Republic, chapter 5. Matthew Happold and Thomas Roe, The Energy Charter Treaty, International Investment Law. The Sources of Rights and Obligations, by Tarcisio Gazzini, Eric De Brabandere, Martinus Nijhoff Publishers, Eduardo Jiménez de Aréchaga, International Law in the Past Third of a Century, RECUEIL DES COURS, (General Course in Public International law, The Hague, 1978). Kelvin King, The Value of Intellectual Property, Intangible Assets and Goodwill, Documents/World Intellectual Property Organization, Krista Nadakavukaren Schefer, International Investment Law: Text Cases and Materials, Edward Elgar Publishing, Second Edition, OECD (2004), Fair and Equitable Treatment Standard in International Investment Law, OECD Working Papers on International Investment, 2004/03, OECD Publishing. vii

8 OECD, Indirect Expropriation and the Right to Regulate OHCHR, Deisl v. Austria Organization for Economic Cooperation and Development, Indirect Expropriation and the Right to Regulate in International Investment Law, OECD Working Papers on International Investment, 2004, OECD Publishing Human Rights Committee, Deisl v. Austria, Communication No. 1060/2002, UN Doc CCPR/C/81/D/1060/2002 (2004), paras OHCHR, General Comment 32. Human Rights Committee General Comment 32, Cagas v. Phillipines, Communication No. 788/1999, UN Doc CCPR/C/73/D/788/1997 (2001) Paulsson, Denial of Justice in International Law Sinclair, The origins of the umbrella clause in the International Law of Investment Protection Sornarajah, The International Law on Foreign Investment. UNCTAD, Expropriation: A Sequel UNCTAD, Investor-State Dispute Settlement and Impact on Investment Rulemaking: J Paulsson, Denial of Justice in International Law, Cambridge University Press, Anthony C. Sinclair, The origins of the umbrella clause in the International Law of Investment Protection, Arbitration International, Vol. 20, 2004 M. Sornarajah, The International Law on Foreign Investment, Cambridge University Press, Third Edition, United Nations Conference on Trade and Development, Expropriation: A Sequel, UNCTAD/DIAE/IA/2011/7, 2012 UNCTAD, Investor-State Dispute Settlement and Impact on Investment Rulemaking, UNCTAD/ITE/IIA/2007/3, 2007 viii

9 WHO, Definitions World Health Organization, Definitions: emergencies, consulted at Yannaca-Small, Fair and Equitable Treatment Standard: Recent Developments, in Standards of Investment Protection K. Yannaca-Small, Fair and Equitable Treatment Standard: Recent Developments, in Standards of Investment Protection, Oxford University Press, 2008, p ix

10 LIST OF LEGAL RESOURCES Arbitral decisions Azinian, Davitiam, Baca v. Mexico Chevron v. Ecuador CMS v. Argentina CME v. Czech Republic, Final Award: CME v. Czech Republic, Partial Award Eastern Credit v. Estonia Robert Azinian, Kenneth Davitiam, & Ellen Baca v. The United Mexican States, ICSID Case No. ARB(AF)/97/2 Award 1 November, 1999 Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador UNCITRAL PCA Case No Interim Award 1 December 2008 CMS Gas Transmission Company v. Argentina, ICSID Case No. ARB/01/08 Award 12 May 2005 CME Czech Republic BV v. Czech Republic UNCITRAL Arbitration Proceedings Final Award 14 March 2003 CME Czech Republic BV v. Czech Republic UNCITRAL Arbitration Proceedings Partial Award 13 September 2001 Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil (US) v. Republic of Estonia ICSID Case No. ARB/99/2 Award x

11 24 June 2001 Eureko v. Poland ITT Industries v. Iran LG&E v. Argentina MCI V. Ecuador Mondev v. USA Neer v. Mexico Occidental v. Ecuador Eureko BV v. Poland Ad Hoc Arbitration Partial Award 19 August 2005 ITT Industries, Inc. v. The Islamic Republic of Iran 2 Iran-United States Claims Tribunal Reports 348 Award 26 May 1983 LG&E v. Argentine Republic, ICSID case No. ARB/02/1 Decision on Liability 3 October 2006 MCI Power Group LC v. Ecuador ICSID Case No. ARB/03/6 Award 31 July 2007 Mondev International Ltd. v United States of America ICSID Case no. arb(af)/99/2 Award 11 October 2002 L.F.H. Neer and Pauline Neer (U.S.A.) v. United Mexican States 4 R.I.A.A. 60 (2006) 15 October 1926 Occidental Exploration and Production Company v. The Republic of Ecuador xi

12 UNCITRAL Award 1 July 2004 Philip Morris v. Australia Plasma v. Bulgaria Pope & Talbot v. Canada Romak v. Uzbekistan Saipem v. Bangladesh Saluka v. Czech Republic Philip Morris Asia Limited v. The Commonwealth of Australia UNCITRAL, PCA Case No Australia s Response to Notice of Arbitration 21 December 2011 Plasma Consortium v. Bulgaria ICSID Case no. ARB/03/24 Decision on Jurisdiction 8 February 2005 Pope & Talbot Inc v. The Government of Canada UNCITRAL Award on the Merits of Phase 2 10 April 2001 Romak S.A. v The Republic of Uzbekistan PCA Case No. AA280 Award 26 November 2009 Saipem S.p.A. v. The People s Republic of Bangladesh ICSID Case No. ARB/05/07 Decision on Jurisdiction and Recommendation on Provisional Measures 21 March 2007 Saluka Investments BV v Czech Republic UNCITRAL xii

13 Partial Award 17 March 2006 Sempra Energy v. Argentina Starret Housing v. Iran Suez v. Argentina Techmed v. Mexico Total v. Argentina Toto v. Lebanon Sempra Energy International v. Argentine Republic ICSID Case No. ARB/02/16 Award 28 September 2007 Starett Housing Corporation v. The Islamic Republic of Iran Iran-United States Claims Tribunal Reports 122 Interlocutory Award 19 December 1983 Suez, Sociedad General de Aguas de Barcelona S.A. and InterAguas Servicios Integrales del Agua S.A. v. Argentina ICSID Case No. ARB/03/17 Decision on Liability 30 July 2010 Técnicas Medioambientales Techmed S.A. v. the United Mexican States ICSID case No ARB(AF)/00/2 Award 29 May 2003 Total S.A. v. The Argentine Republic ICSID Case No. ARB/04/01 Decision on Liability 27 December 2010 Toto v. Lebanon ICSID Case No. ARB/07112 xiii

14 Decision on jurisdiction 11 September 2009 Wena Hotels v. Egypt White v. India Wena Hotels Limited v. Arab Republic of Egypt ICSID Case No. ARB/98/4 Decision on Interpretation 31 October 2005 White Industries Australia Ltd. v. The Republic of India UNCITRAL Final Award 30 November 2011 Court decisions Barcelona Traction Bostwana v. Namibia Barcelona Traction, Light and Power Company, Limited. I.C.J. Reports 1970, p. 3 Judgment Kasikili/Sedudu Island (Bostwana v. Namibia) ICJ Reports 1999, 1045, para 18. Judgement Guinea v. Congo Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo) I.C.J. Reports 2007, p. 582 Preliminary Objections, Judgment Sholokov v. Moldova Sholokov v. Armenia and the Republic of Moldova ECHR Application no /05 31 July 2012 xiv

15 Judgment Zappia v. Italy Zappia v. Italy ECHR Application no /94 26 September 1996 Judgment Statutes Doha Declaration Draft Articles on Responsibility of States for Internationally Wrongful Acts Doha Declaration on Text of the Declaration on the TRIPS Agreement and Public Health, 2001 Draft Articles on Responsibility of States for Internationally Wrongful Acts, with commentaries, adopted by the International Law Commission at its 53rs session, Yearbook of the International Law Commission, 2001, vol. II, Part Two ECT Energy Charter Treaty, 1994 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards OECD, Draft Convention on the Protection of Foreign Property VCLT New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, OECD, Draft Convention on the protection of foreign property and Resolution of the Council of the OECD on the Draft Convention, OECD Publication No , 1967 United Nations Convention on the Law of Treaties signed at Vienna, (May 23, 1969). xv

16 STATEMENT OF FACTS 1. On 1998 Mercuria and Basheera concluded a BIT, in line with Basheera s economic policy, tending to promote market openness. 2. On 5 April 1998, Atton Boro Limited was duly incorporated in the Kingdom of Basheera in order to strengthen Atton Boro Group s presence in Basheera and further expand its services to other pharmaceutical markets in South America and Africa. In this regard, Atton Boro s regular business activities were based on the exploitation of its portfolio of patents, by concluding agreements with States and State agencies for the manufacture and supply of essential medicines at viable rates. 3. Considering that the BIT concluded between its country of nationality and Mercuria had entered into force, Atton Boro acquired the ownership of Valtervite s patent on 15 April The NHA had been involved in initiatives, which sought to prevent the spread of sexually transmitted diseases such as HIV/AIDS and greyscale. Since 1999 the NHA and Atton Boro maintained a Product Development Partnership called Mercuria Comprehensive HIV/AIDS Partnership, which was catalogued by the government of Mercuria as a success. 5. Accordingly, in May 2004 the NHA invited Atton Boro to present an offer for the supply of its FDC drug Sanior, the main compound of which is Valtervite. After the NHA evaluated other offers, a negotiation process with Atton Boro followed. Finally, on 20 July 2004 the NHA and Atton Boro entered into the LTA. 6. The LTA was a supply agreement whose purpose consisted of the purchase of Sanior by the NHA from Atton Boro, by the placing of periodic orders, at a 25% discount rate. The parties agreed upon a validity term of ten (10) years, subject to Atton Boro s satisfactory performance. 1

17 7. By June 2005, Atton Boro set up its Sanior manufacturing unit in Mercuria and delivered its first supply. The NHA began distribution of Sanior across Mercuria with this first consignment. By the end of 2006, about a third (1/3) of greyscale patients in Mercuria were successfully being treated with Sanior. 8. The number of greyscale patients increased notably in 2007, to such extent that the order value for Sanior doubled with each quarter of the year. As a response, Atton Boro purchased land and machinery to make more robust its manufacturing unit and increase production of Sanior. 9. In early 2008, the NHA reported to Atton Boro that a renegotiation of the price for Sanior was necessary, on the ground that it needed to supply twice the quantity of medicines by virtue of the increase in the population of greyscale patients. Atton Boro offered an additional discount of 10%, which the NHA rejected. Rather, the NHA demanded a further discount of 40%, which would virtually eviscerate Atton Boro s revenues, threatening to terminate the LTA if such a discount was not applied. 10. On 10 June 2008, the NHA unilaterally terminated the LTA, alleging unsatisfactory performance by Atton Boro, allegation, which was unfounded. In response to this, Atton Boro invoked arbitration under the LTA, from which it obtained an Award in its favor. The Award found that the NHA breached the LTA by unilaterally terminating it before its term elapsed. 11. On 3 March 2009, Atton Boro filed enforcement proceedings for The Award before the High Court of Mercuria. 12. On 8 November 2011, during the enforcement proceeding, The NHA submitted to the Judge that it had filed its rejoinder on 30 October Nevertheless, the respondent didn t serve the rejoinder on Atton Boro. By failing to do so, Atton Boro claimed that NHA had breached Mercurian procedural law. Nevertheless, The Judge did not impose any sanction on the respondent. 2

18 13. During the enforcement Proceeding, only once did Atton Boro request a court extension. On 23 February 2011, it sought leave to file a reply to NHA s response before the next date of hearings. 14. During the trial, the High Court indulged every delay tactic employed by the NHA, granted adjournments for the asking and entertained applications that were clearly lacking in merit, causing the Award to remain unenforced. As a matter of fact, the NHA was absent on 9 occasions (22 September 2009,15 January 2010, 5 October 2011, 4 September 2012, 8 November 2012, 9 September 2014, 5 March 2015, 25 July 2015, 30 October 2016). Once, the NHA even requested the Court to grant an extension of 4 weeks on the ground that its counsel was on corporate retreat. 15. Atton Boro submitted, in the majority of NHA s nonappearance, that its absence from court without good reason had breached Mercuria s procedural law, and requested for strict measures to be taken. Unfortunately, most of the time the Court remained silent about it or merely acknowledged the objection. 16. The unreasonable delay of over seven years in disposing of enforcement proceedings in relation to the Award plainly shows that Mercuria failed to provide any effective means to Atton Boro s rights. So far, no substantial decision has been made. 17. On 10 October 2009, in an unprecedented decision the President of Mercuria amended the National Intellectual Property Law, introducing for the first time the use of nonvoluntary licenses. 18. Only one month later, HG-Pharma, a generic drug manufacturer in which the government owned 50% of the shares, filed an application for a licence to manufacture Valtervite without even attempting to negotiate with Atton Boro. 19. After a fast-tracked process, a compulsory license for Valtervite was granted to HG- Pharma on 17 April of As the patent s owner, Atton Boro was recognized a royalty of 1% of total earnings, a ridiculous sum considering that in similar cases the same rate could reach a 3%. 3

19 20. By 2013 HG-Pharma s capacity of production was robust enough to supply the domestic market and even provide humanitarian aid to three more States. 21. Unfortunately, Mercuria s arbitrary actions Atton Boro s severely affected since not only two-thirds of its market share was lost to HG-Pharma, but also several distributors announced the termination of their commercial relations due to the generic alternative. 22. Thus, in February 2015 Atton Boro publically announced that the devastating effect of the government s decisions, including the usurping of its intellectual property rights, forced the company to cease Valtervite s distribution. Undoubtedly, the price war with HG-Pharma was an insurmountable obstacle for the recovery of the resources invested into risky R&D. 4

20 PART ONE JURISDICTION 23. For the reasons set out herein the Claimant argues that (I) the Arbitral Tribunal may exercise its jurisdiction over the claims in relation to the Award since it has ratione materiae competence considering that such Award is an Investment protected by the BIT. Moreover (II) the denial of benefits clause does not apply taking to account that Atton Boto Limited is an investor and the rules included in article 2 not apply to this case. I. THE ARBITRAL TRIBUNAL MAY EXERCISE ITS JURISDICTION OVER THE CLAIMS IN RELATION TO THE AWARD. 24. The Respondent challenges the competence of the Arbitral Tribunal by saying it lacks jurisdiction over the claims that were made regarding the enforcement of the Award At issue is whether the January 2009 Award by the Tribunal seated at Reef, which held that the NHA by terminating prematurely the contract had breached the LTA, qualifies as an investment under the BIT. The Arbitral Tribunal is competent herein based upon the following arguments: A) The concept of Investment given in the BIT; B) The interpretation of the BIT regarding the ordinary meaning of the term investment; C) Identification of characteristics of the Investment. A. The concept of Investment given in the BIT. 26. Article 1 of the BIT defines investment as any kind of asset held or invested 2. Though not providing an exact meaning it includes a list that indicates what can be considered as an asset. 27. Two specific examples are: (c) claims to money, and claims to performance under contract having a financial value; 3 and (e) rights, conferred by law or under contract, to undertake any economic and commercial activity 4 Regarding the former, an Award can be considered as a claim to money because of its nature in which the Claimant has 1 Answer to Notice for Arbitration, p. 16, Procedural Order No. 1, Annex 1, p. 32, Ibid, Ibid,

21 a credit for the amount of money given in the Award. 5 As said in Saipem v. Bangladesh: However, in their ordinary meaning, the words credit for sums of money also cover rights under an award ordering a party to pay an amount of money: the prevailing party undoubtedly has a credit for a sum of money in the amount of the award Accordingly, the Award itself entitles the Claimant to expect the payment of money as a restitution for what was due. Therefore, the Award fits perfectly within the definition that has been established in the previous paragraphs. 29. Furthermore, Article 1(1) (e) refers to the rights conferred by law or under contract. Taking into consideration that the Award is a direct consequence of the contract between the Claimant and the NHA, to use a correct expression is the crystalisation of its rights under the Contract 7, this has a connotation that only can mean that the Award has the protection of BIT because it is an investment, seeing it is a package with the original investment, the LTA. 30. In addition to the foregoing, the last part of the above noted article indicates: Any charge in the form of an investment does not affect its character as an investment. 8 This phrase provides further foundation to the idea of the Award as an investment. As stated in Chevron v. Ecuador: Once an investment is established, it continues to exist and be protected until its ultimate disposal has been completed that is, until it has been wound up It allows us to conclude that no matter how the contract had come to an end it transformed into the Award, this because of the rights that were born in the LTA are reflected in the Award; making such Award an asset under of the protection of the BIT. 5 Saipem v. Bangladesh, para Ibid. 7 White v. India, para Procedural Order No. 1, Annex 1, p. 33, Chevron v. Ecuador, para

22 B. The interpretation of the BIT regarding the ordinary meaning of the BIT 32. The BIT does not give an exact definition of what is considered as an investment. That, is why the Arbitral Tribunal must consider an analysis of the ordinary meaning of the term investment, as a way of interpretation of the BIT: Investment. (16c) 1. An expenditure to acquire property or assets to produce revenue; a capital outlay. 2. The asset acquired or the sum invested Taking into account this definition, the ordinary meaning of the term investment it is a commitment of capital and has the purpose of receiving a profit or a return, as concluded in Romak v. Uzbekistan The commitment of capital made by the Claimant was reflected in the LTA and in the sum of money invested for its fulfillment, and after the early termination the only way the investor could realize his return was by the execution of the Award. Accordingly, the Award is part of the investment making it protected under the BIT. 35. Nevertheless, the analysis of the ordinary meaning of investment conducted according to Article 31 of the VCLT 12 indicates that it should be interpreted according with the purpose or objective of the Treaty. The rules of treaty interpretation of the VCLT are considered as customary international law, applicable even if the States have not ratified it. 13 As case Botswana v. Namibia states: As regards the interpretation of that Treaty, the Court notes that neither Botswana nor Namibia are parties to the Vienna Convention on the Law of Treaties of 23 May 1969, but that both of them consider that Article 31 of the: Vienna Convention is applicable inasmuch as it reflects customary international law In this case, the preamble of the BIT is the purpose of the Contracting Parties. That is why it is necessary to interpret the BIT itself. According to this, the Phrases: to promote greater economic cooperation between them with respect to investment by nationals and enterprises of one Contracting Party in the territory of the other Contracting 10 Black s Law Dictionary. 11 Romak v. Uzbekistan, para VCLT, Article Billiet, International Investment Arbitration: A practical Handbook, p Bostwana v. Namibia, para 18. 7

23 Party 15 and such investment will stimulate the flow of private capital and the economic development of the Contracting Parties 16 demonstrate that the purpose of the BIT is to make stronger economic relations between the States by doing the proper protection of the investment made by the investors. 37. Therefore, the Award being a representation of the Investment the Claimant in Mercuria, it has to be protected by all the possibilities that the BIT provides, such as the resolution of a dispute by an Arbitral Tribunal. C. Identification of characteristics of Investment. 38. Alternatively, case law assists in defining investment by providing an analysis and setting out the characteristics of investments. 39. Professor Schreuer 17 sets out a list of features that help identify what can be considered as an investment. They can be applied to the case at issue as follows: the first such feature is that the projects have a certain duration, in this case the LTA was expected to have a duration in time longer than 10 years 18, that it was shortened by the NHA, that concluded in the Award; the second feature is a certain regularity of profit and return, given it was a supply contract, the return on the investment was made by the fact that NHA was paying for such supply. The breach of the contract terminated the revenues and rendered the payment of damages necessarily to be considered as a part of the Award. 40. The third feature is the assumption of risk usually by both sides, the risk regarding this investment is found in the investment the Claimant made to comply with the LTA, [t]he fourth typical feature is that the commitment is substantial. This is also found in the case such as the finding that the capital expended by Claimant to respond in the NHA are substantial, given that the Claimant built a manufacturing unit in Mercuria, so as to deliver the NHA s orders. The fifth feature is the operation s significance for the 15 Procedural Order No. 1, Annex 1, p. 32, Ibid, p. 32, Schefer, International Investment Law: Text Cases and Materials, p Uncontested Facts, p. 29,

24 host State s development., because of the contract being with a State organism, and the commitment of money was substantial. This feature can be found in the Investment. 41. This analysis clarifies that the Award is just a transformation of the initial investment that is the LTA with NHA. This contract, as shown, has all the characteristics of an Investment. 42. As a result of the above, the Respondent is incorrect when it states that the Arbitral Tribunal lacks jurisdiction over the case. The Tribunal has the rationae materiae competence in the case since the Award is in fact an investment because the Award is the transformation of the initial investment, and is a direct consequence of it. II. APPLICATION OF THE DENIAL OF BENEFITS CLAUSE. 43. The Respondent also challenges the competence of the arbitral tribunal asserting that because of the application of denial of benefits, the BIT does not apply, given no competence to the Tribunal. 44. This argument fails based upon two arguments. A) First, under the BIT, Atton Boro Limited is an investor and B) the Respondent invoked the clause at the wrong time. A. The meaning given by the BIT of an investor. 45. Art. 1(2) of the BIT defines investor as follows: (b) any corporation, partnership, trust, joint venture, organization, association or enterprise incorporated or duly constituted in accordance with the applicable laws of that Contracting Party Accordingly, under the BIT, nationality is determined by the state of incorporation. 47. Thus, the Claimant is an investor and has made an investment in a Contracting Party. It complied with the rules of incorporation under the law of the Kingdom of Basheera since April Procedural Order No. 1, Annex 1, p. 33, Uncontested Facts, para. 4. 9

25 48. The international case law on the subject has also reflected that it prefers the place of incorporation to determine the nationality of a company 21. This is seen in cases such as Barcelona Traction Case or Guinea v. Congo. 22 Therefore, as a national of the Kingdom of Basheera, Atton Boro is entitled to protection under the BIT. B. Procedure to the application of the denial of benefits clause. 49. The Respondent argues that it does not apply the BIT in the present case, because of the use of the denial of benefits clause. 50. Under Article 2 of the BIT, the BIT would not apply when: a legal entity, if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the territory of the Contracting Party in which it is organized This clause only has effects when is used by the Contracting Party at the correct moment. Investment Arbitral jurisprudence has stated that this clause cannot operate retroactively. A retroactive use of this clause can affect the application of the Treaty because it can be a way out for the Contracting Parties from complying with their obligation regarding the protection of the investments. The Contracting party that wants to operate such clause must make a notification at the beginning of the economic relation with the investor Though case law varies as to the appropriate time to notify, in all cases it has to be before the conflict has arisen and proceedings before the tribunal have commenced. In the case at bar, the Respondent never sent a notification to the Claimant to inform it of the application, thus making the clause inapplicable. 53. The non-notification contradicts the objection made by the Respondent when it stated that Mercuria exercised its prerogative enshrined in Article 2 of the BIT, given that the 21 Sornarajah, The International Law on Foreing Investment, p Barcelona Traction, p. 3.; Guinea v. Congo, p Procedural Order No. 1, Annex 1, p. 33, Gazzini, De Brabandere, International Investment Law. The Sources of Rights and Obligations, p

26 clause can only have effects in the future, and that the notification has a publicity use as said in the Plasma v. Bulgaria: The exercise would necessarily be associated with publicity or other notice so as to become reasonably available to investors and their advisers. To this end, a general declaration in a Contracting State s official gazette could suffice; or a statutory provision in a Contracting State s investment or other laws; or even an exchange of letters with a particular investor or class of investors In consequence, the Arbitral Tribunal has jurisdiction over the case, given that the Respondent did not exercise the clause in time. The application of the BIT is not debatable. 25 Plasma v. Bulgaria, para

27 PART TWO MERITS I. THE RESPONDENT S ACTS ARE IN VIOLATION OF ITS INTERNATIONAL OBLIGATIONS 55. The Claimant submits that the Respondent has breached its obligation to provide Fair and Equitable Treatment under the Mercuria-Basheera BIT (A). In the alternative, the Claimant argues that the Respondent s acts amount to an indirect expropriation (B). A. The Respondent s Acts violate the Fair and Equitable Treatment obligation of the Mercuria-Basheera BIT 1. The FET clause of the BIT is an autonomous concept 56. Under Article 3.1 of the Mercuria-Basheera BIT, contracting parties must provide fair and equitable treatment to Investors. 26 The substance of the FET obligation can be interpreted in accordance with an autonomous concept 27 or under the minimum customary international law standard. 28 When a dispute is submitted to an arbitral tribunal on the grounds of a BIT, the treaty as lex specialis is certainly the first and main source of law. 29 Therefore, unless the BIT otherwise provides, the FET is an autonomous and self-contained standard that goes beyond customary international law In the case at bar, the wording of article 3.1 of the Mercuria-Basheera BIT s does not make any reference to international law, customary international law or the minimum treatment standard. 58. Thus, the FET obligation is autonomous and self-contained. 26 Procedural Order No. 1, Annex No. 1, p. 33, Saluka v. Czech Republic, para Neer v. Mexico. 29 LG&E v. Argentina, para Pope & Talbot v. Canada, para. 111; Techmed v. Mexico, para

28 2. The Respondent has breached the FET clause, insofar as the amendment of Mercuria s Intellectual Property Law undermines Atton Boro s legitimate expectations 59. An autonomous FET obligation entails the protection of the investor s legitimate expectations at the time the investment was made. 31 In this regard, States must balance their regulatory power with their obligation to grant the stability and predictability of the legal framework that formed the basis of the investment. 32 Correspondingly, investors are entitled to expect that States will comply with their international legal obligations. 33 Moreover, as was acknowledged in the Total v. Argentina case, the investor s expectations also merit protection, if they rely on specific governmental declarations or promises, such as soliciting or inducing the investor to make a given investment On the basis of the foregoing, the Claimant submits that (a) the Respondent has violated its legitimate expectations since the enactment of Law No.8454 undermines legal stability and (b) the granting of a compulsory license for Valtervite is contrary to Mercuria s international obligations. a. The enactment of Law No.8454 violates the Claimant s legitimate expectations on the stability of Mercuria s legal framework 61. The Mercurian Intellectual Property Law dates back to and did not expressly provide for the issue of compulsory licenses. 36 In this sense the IP legal framework remained unmodified for over 30 years until Law No.8454 of 2009 surreptitiously amended it, introducing a provision for the use of patented inventions without the authorization of the owner. 37 Additionally, on 19 January 2004 the Minister for Health, in a statement concerning the NHA s five-year health plan acknowledged the pivotal 31 Yannaca-Small, Fair and Equitable Treatment Standard: Recent Developments, in Standards of Investment Protection, p ; Sempra Energy v. Argentina, para Occidental v. Ecuador, para. 191; CMS v. Argentina, para Total v. Argentina, para. 123; Philip Morris v Australia, para Total v. Argentina, para Procedural Order No. 1, Annex 4, Procedural Order No. 3, Procedural Order No. 1, Annex 4,

29 role of Patents in pharmaceutical innovation and reinforced Mercuria s promise to vest right holders. 38 Furthermore, the aforesaid declaration exclusively highlighted Atton Boro s partnership over other five programs. 39 Shortly thereafter, the President of Mercuria publically shared the government s commitment to attract investors. In May 2004, in furtherance of this declaration, the NHA directly solicited Atton Boro to make an offer for the supply of its patented drug and in reliance upon the representations of Mercuria through its vested authorities, Atton Boro proceeded to make the investment which is the subject matter herein. 62. In light of the foregoing, the legal framework along with the particular references made to Atton Boro, in particular the direct governmental request for the production of Valtervite, clearly triggered the Claimant s decision to invest in Mercuria. Therefore, the enactment of a regulation that is contrary to the investor s legitimate expectations, amounts to a breach of the Fair and Equitable Treatment obligation under the BIT. b. Since the compulsory license for Valtervite is contrary to the TRIPS agreement, Mercuria has breached the Claimant s legitimate expectations 63. The TRIPS Agreement is built upon the idea of a balance between intellectual property rights and public welfare. WTO members are clearly permitted to take the necessary measures to protect public health, as long as they are consistent with the provisions of the Treaty. In this vein, under article 31 of the TRIPS, States may authorize the use of a Patent without the right holder s consent, subject to the fulfillment of certain requirements. On these grounds, the Claimant submits that Mercuria did not comply with the conditions set forth in Article 31 (b) and (h). Article 31 (b) 64. First, according to paragraph (b), prior to the issuance of a compulsory license, the proposed user must try to obtain authorization directly from the right holder on reasonable commercial terms, within a reasonable frame of time. 38 Procedural Order No. 1, Annex 2, 4 39 Ibíd., 1255,

30 65. In November 2009, HG-Pharma applied for Valtervite s license, which was granted on 17 April Neither before the application nor after the authorization of the compulsory license, did the proponent or the government even attempt to negotiate a direct authorization with Atton Boro. Instead, HG-Pharma only contacted the Claimant once the license was issued, to transfer the corresponding royalties However, paragraph (b) also provides that States may waive the prior requirement in the event of a national emergency. The Doha Declaration recognizes that a public health crisis can be considered as a national emergency and makes reference to epidemics such as HIV/AIDS, tuberculosis (TB), and malaria. 42 An epidemic can amount to an emergency if the disease is severe enough to cause death or serious disability, if the number of cases causes social or economic disruption and if authorities lack capacity, experience or resources to address the epidemic. Moreover, the threshold for emergencies due to epidemics, in terms of mortality rate, 43 is certainly higher if there is a pre-existing state of endemicity. 44 The latter understood as a disease that had always been present in the population before the sharp increase of cases leading to an outbreak Since 1990, scientists have described greyscale as a non-fatal disease, unlike HIV/AIDS, TB or malaria. The virus has been present in Mercuria since 1985, and it became an epidemic between 2003 and 2006, when the number of cases increased exponentially. 46 Nevertheless, there is no evidence supporting that this outbreak disrupted Mercuria s economic and social order to the extent of creating a critical situation. Had the epidemic been as urgent as the Respondent alleges, it would not have taken almost two years to reestablish the subsidized provision of Valtervite under the compulsory license. 47 As a matter of fact, patients with a positive diagnosis for greyscale represent only 0.5% of the vulnerable population, a percentage that has been estimated 40 Uncontested Facts, para Procedural Order No.3 42 Article 5(c), Doha Declaration. 43 WHO, Definitions. 44 P. Brès, Public Health Action in Emergencies Caused by Epidemics A practical guide. 45 European Commission, p Annex No. 3, Uncontested Facts, para. 17 and 21 15

31 to reach a maximum of 1.2% 48 and only a marginal decrease of 0.002% of the vulnerable demographic has been reported. Furthermore, in spite of being a developing country, Mercuria has demonstrated its capacity to cope with the greyscale epidemic. The latter considering that the government owns 50% of Valtervite s generic manufacturer, 49 which has generated substantial savings to the State (1.2 US billions annually), 50 and that it s production has been successful to the extent of being able to aid three neighboring countries by sending medicines As a result, it is manifest that although greyscale is a disease affecting the people of Mercuria, it is far from constituting such a national emergency that justifies Mercuria s lack of compliance with the TRIPS requirements. Article 31(h) 69. Second, under article 31(h), the rights holder is entitled to receive an adequate remuneration according to the economic value of the authorization. 70. The direct effect of the license over Atton Boro s income was the loss of two-thirds of its market share to HG-Pharma. 52 In this sense, a royalty of 1% over the revenues of a company that now owns more than half of the market is disproportionate and far from an adequate remuneration. 71. On the basis of the foregoing, the Respondent s has failed to perform its international obligations, as a State party to the TRIPS, since the issuance of a compulsory license for Valtervite blatantly disregards the provisions of the Treaty. Therefore, Mercuria has breached the FET clause by violating Atton Boro s legitimate expectations. B. The Respondent's acts amount to an unlawful indirect expropriation 72. As an alternative claim, the Claimant contends that an indirect expropriation has occurred over Claimant's property with regard to the granting of a compulsory license. 48 Annex No.3, page Procedural Order No. 3, Uncontested Facts, para Ibid., para Ibid., para

32 In doing so, the Claimant submits that (1) The Respondent expropriated the Claimant's property; and (2) The expropriation was unlawful. 1. The Respondent expropriated the Claimant's property 73. Expropriation has been defined by customary international law as the seizure of legal title of property 53, or as the taking of private property by the State. An indirect expropriation occurs when there is a complete or partial deprivation of an investment, but not by virtue of a transfer of property or a material seizure of the asset 54.The Suez v. Argentina Tribunal considered that an indirect expropriation materializes, for instance, in such situations: "In case of an indirect expropriation, sometimes referred to as a regulatory taking, host States invoke their legislative and regulatory powers to enact measures that reduce the benefits investors derive from their investments but without actually changing or cancelling investors legal title to their assets or diminishing their control over them." To demonstrate that the Respondent indirectly expropriated Claimant's property over the patented compound, the Claimant submits that the granting of a compulsory license on Valtervite to HG Pharma, a generic drug manufacturer, with a royalty of 1% of total earnings (the Measure ), resulted in a substantial deprivation of Claimant s property. A substantial deprivation occurs when the evisceration of an investment is an effect of a measure taken by a host state. 75. To affirm that a substantial deprivation has occurred, three things are to be considered: 56 (a) If there was a total or near-total destruction of the investment s economic value, (b) If the investor has been deprived of the control over the investment, and (c) If the effects of the measure are permanent OECD, Indirect Expropriation and the Right to Regulate, p UNCTAD, Expropriation: A Sequel, p Suez v. Argentina, para Dolzer and Schreuer, Principles of International Investment Law, p UNCTAD, Expropriation: A Sequel, p

33 76. In order to establish that Claimant was substantially deprived of its property, the Claimant will demonstrate that the aforementioned consequences in fact derived from the enactment of the measure by the Respondent. a. The Measure resulted in a near-total destruction of the investment s economic value 77. The CME v. Czech Republic Tribunal concluded that a deprivation takes place when host states adopt measures that effectively neutralize the benefit of the property for the foreign owner 58. Similarly, the ITT Industries v. Iran Tribunal established that when government actions deny the rights of ownership, use and enjoyment of an investment it amounts to expropriation. 59 Also, the CMS v. Argentina ICSID Tribunal held that it had to be determined if the enjoyment of property had been neutralized in order to assert that a substantial deprivation occurred In the case at hand, the Mercurian Valtervite patent was assigned on April 15 of 1998 to the Claimant. The Claimant entered into contractual relations with the Respondent with the purpose of supplying Sanior, composed mainly of Valtervite, and tackling the issue of greyscale. To attend the contractual obligations and needs of the Mercurian population, the Claimant set up a manufacturing unit and progressively increased production of Sanior. 79. Without regard to the above mentioned efforts done by the Claimant, in April of 2010 the Respondent granted a non-voluntary license of Valtervite to a generic-drug manufacturer, until greyscale was no longer a threat. 61 By 2014, the Claimant had lost nearly two-thirds of its market share to the new generic FDC drug distributed by the compulsory licensee, HG Pharma. 62 Additionally, HG Pharma has not yet recognized to the Claimant the 1% royalty over total revenues it should have. The Claimant found itself forced to terminate its supply of Sanior in Mercury. 58 CME v. Czech Republic, Partial Award, para ITT Industries v. Iran, p CMS v. Argentina, para Uncontested Facts, para Uncontested Facts, para

34 80. Hence, the Respondent s Measure resulted in the near-total economic destruction of the Claimant s investment. b. The Claimant has been deprived of the control over the investment 81. The Claimant submits that the present issue has relevant similarities with the Starrett Housing Corp. v. Iran case, insofar the US-Iran Claims Tribunal had to determine whether there was an expropriation, regardless of the fact that the property was not seized or transferred. The US-Iran Claims Tribunal found that the appointment of an Iranian Temporary Manager over the Starrett Housing Project deprived the shareholders of their rights, albeit title to the property was not transferred but rather remained with the original owner. 63 Accordingly, the Claimant submits that this position must be adopted by the Tribunal of the present case. 82. Regarding the present case, it is clear that the Claimant lost its rightful control over the patented compound Valtervite. The Respondent assumed the control over the exploitation of Valtervite through the enactment of Law No. 8458, which allowed for the use of patented inventions without authorization of the owner. HG Pharma acquired the faculty to develop a generic FDC drug with Valtervite without an authorization of the Claimant. 83. The Claimant submits that its control over the Valtervite patent was dissipated with the granting of non-voluntary licenses preceded by the enactment of Law No c. The effects of the Measure are permanent 84. The Tribunal in Wena Hotels v. Egypt, in its Decision on Interpretation, found that even though the analyzed measure did not permanently deprive Wena of its fundamental rights of ownership, its negative effects over the enjoyment of the investment were so profound that it amounted to expropriation Starrett Housing v. Iran, para Wena Hotels v. Egypt, para

35 85. The Measure in the present case was adopted by the Respondent with an alleged limited duration, which was until greyscale is no longer a threat. Notwithstanding, medical consensus is that there was no effective greyscale treatment from 2008 until 2011 approximately, 65 so it can be concluded that Sanior was not a completely effective treatment for greyscale. Thus, the term of duration established for the non-voluntary license is, in reality, unlimited. 86. The Claimant submits, in consequence, that the effects of the Measure are permanent. 87. Having demonstrated that the Measure resulted in a near-total destruction of the investment s economic value, that the Claimant was deprived of the control over the investment, and that the Measure s effects are permanent, the Claimant affirms that it was indirectly expropriated by the Respondent. 2. The expropriation was unlawful 88. There is consensus in International Investment Law on how to determine whether an expropriation is lawful. The legality of a measure of expropriation is subject to four requirements 66 : 1. for public purpose, 2. in a non-discriminatory manner, 3. in accordance with due process of law, and 4. against payment of compensation. 67 Article 6(2) of the BIT establishes the particular requirements the Respondent must have observed in order to lawfully expropriate the Claimant, and it replicates those four criteria mentioned above. The article expressly prohibits expropriation except for certain situations which are stated as follows: ( ) for public purpose, or national interest, against immediate full and effective compensation, and on condition that these measures are taken on a nondiscriminatory basis and in conformity with all legal provisions and procedures The Claimant submits that the Measure was taken without considering the aforesaid requirements, namely the immediate full and effective compensation and the 65 Procedural Order No. 3, Dolzer and Schreuer, Principles on International Investment Law, p UNCTAD, Expropriation: A Sequel, p Procedural Order No. 1, Annex 1, p. 35,